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Risk Trade Keeps EUR/USD Above 1.5000

Last updated 11/11/2009 5:42 AM ET (GMT -5) 5 Comments

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Boris Schlossberg

Director of Currency Research, GFT

Top Stories

• Chinese data blows out to the upside - factory demand surges to 19 month high
• UK jobless rise at slowest pace in more tha 18 months, employment rises first time in more than a year
• Asia and Europe both higher as eco data supportive
• Oil still below $80/bll at $79.44 last
• Gold hits a record high of $1117/oz.

Overnight Eco

• AUD Westpac Consumer Sentiment drops to -2.5% from 1.7% last first dip in 6 months
• JPY Core Machinery Orders huge jump to 10.5% from 3.4% forecast
• GBP Claimant Count Change 12.9K vs. 20.2K
• GBP Average Earnings Index 1.2% vs. 1.5%
• GBP Unemployment Rate 7.8% vs. 8.0%

Event Risk on Tap

• Veterans holiday - fixed income, banks closed

Price Action

• USD/JPY rises toward 90.00 after Geither' s strong dollar remarks
• AUD/USD hits fresh yearly high at 9345 as China data supports
• GBP/USD targets 1.6800 after jobless data best in more than a year
• EUR/USD risk flows push it to 1.5040

The risk trade was on in  full force in overnight trade as high beta FX rose steadily in Asian and early European session in the wake of strong data from China and better employment results from UK. Chinese Industrial Production, Retail Sales and Trade Balance numbers all beat expectations suggesting that the Asia giant remains  the locomotive of the global recovery trade.  

Chinese IP printed at 16.1% versus already high expectations of 15.3%  while Retail Sales rose 16.2% vs. forecast of 15.7% and Trade Balance increased to an impressive 24.0 Billion against projections of 19.2 Billion. The latest batch of data will no doubt put further pressure on Chinese authorities to allow for some yuan appreciation, as everyone from China’s ASEAN neighbors, to ECB Chief Jean Claude Trichet to President Obama  have all expressed concern over the weakness of the renminbi in light of China’s meteoric economic growth.

However, given the history of Chinese  currency management we believe that any appreciation in the yuan will be gradual and measured at best, as authorities make sure that the rise does not hurt the prospects further growth. A rise in the yuan should help boost domestic demand, assuming global recovery trends remain on track and one side beneficiary of this dynamic will the Aussie as Chinese investors continue to pour capital into the country’s natural and real estate resources.

The AUD/USD hit a fresh yearly high on .9345 in overnight trade, but in the near term we remain cautious on further upside in the pair ahead of the key employment data tonight.  Last night sharp drop on Westpac consumer confidence survey – the first    in more than 5 months – suggests that the recent tightening of credit by the RBA is already producing  contractionary ripples through the Aussie economy. However, if the jobs data surprises to the upside markets will once again price in the possibility of yet another rate hike by the RBA before year end and such a scenario could push the pair to .9500  is risk  flows prove supportive.

Meanwhile in UK the upside eco surprises continued with jobless claims printing at 12K vs. 20k eyed while ILO employment actually increased for the first time in more than a year and half as the rate dropped to 7.8% from 8.0%. Cable rose to 1.6780 in the aftermath of the report but quickly receded off the highs ahead of the BoE Quarterly inflation report with traders worried that UK monetary official will continue their QE policy in spite of clearly improving economic fundamentals.

In North America, the Veterans day holiday has banks and fixed income markets closed today suggesting a relatively quiet session ahead. With equities up for five straight days in a row   a retrace is due and that could impede any further  in risk currencies for now.

FX Upcoming

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Comments (5)

John Booke

November 11, 2009 at 08:29 AM ET

China retail sales figures for October 2009 have been announced just 2 weeks after the announcement of the September number. The October figure has not been published at the official Chinese statistical website. Why won't the Chinese publish a calendar of future release/announcement dates?

bschlossberg

November 11, 2009 at 08:34 AM ET

You have to ask them

FXDragon

November 11, 2009 at 10:08 AM ET

Why do westerners want strong Chinese currency?

stockprophet

November 11, 2009 at 11:34 PM ET

because a strong Chinese currency adds stability to the market because the Chinese are known for manipulating there currency to the down side

FXDragon

November 12, 2009 at 06:23 AM ET

but so is the us, uk and swiss...

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About The Author

Boris Schlossberg began his Wall Street trading career more than 20 years ago at Drexel Burhnam Lambert. There, he traded nearly every type of financial product on the market in the U.S., from equities and options to stock index futures and foreign exchange. His innate ability to analyze market information and use it to trade has helped him become an industry-recognized, “go to” trading professional.

These days, whenever the markets move, many organizations turn to Schlossberg for his take on the situation. He is a weekly contributor to CNBC's Squawk Box and a regular commentator for Bloomberg radio and television. His daily currency research is widely quoted by Reuters, Dow Jones and Agence France Presse newswires and appears in numerous newspapers worldwide. Schlossberg has written for publications like SFO magazine, Active Trader and Technical Analysis of Stocks and Commodities. He is also the author of Technical Analysis of the Currency Market and the co-author of Millionaire Traders: How Everyday People Are Beating Wall Street at Its Own Game with Kathy Lien. He joined GFT in 2008.